Zillow Shares Plummet After Missing Earnings Estimates. Company to Close Home Buying Business And Lay Off 25% Of Workforce

Zillow shares plummeted on Tuesday after the company missed it’s third quarter earning estimates. The company also said it’s shuttering “Offers”. Offers is the Zillow subsidiary that buys and flips homes. Offers was set up to compete with Opendoor, In addition, Zillow stated they are eliminating 25% of it’s workforce.

Zillow CEO Rich Barton said in the release:

We’ve determined the unpredictability in forecasting home prices far exceeds what we anticipated. Continuing to scale Zillow Offers would result in too much earnings and balance-sheet volatility.

Zillow shares plummeted 7.5% in extended trading. That also followed a 10% plunge during regular market hours. As result of the poor earnings report, Zillow shares are now down about 10% for the year as of Tuesday’s close.

Here are the key numbers from earnings:

Zillow shares lost 95 cents adjusted vs. profit of 16 cents per share expected in a Refinitiv survey of analysts

Zillow also lost $1.74 billion in revenue vs. $2.01 billion in revenue expected by Refinitiv

By contrast, revenue in Zillow’s Offers business climbed to $1.17 billion in the quarter. That is up from $186 million a year earlier in the middle of the pandemic and in a dry period for transactions. However, Offers lost $422 million in the quarter. As a result, this produced an overall net loss at the company.

Shares of Opendoor rose 7% in extended trading. However, the stock plunged alongside Zillow earlier in the day by dropping 15% at the close.

Zillow launched Offers and began buying homes in Southern California in December 2019. The instant buying product allowed homeowners to sell their home to Zillow for cash. Thus, the seller could eliminate a lengthy bidding, sales and closing process. They also didn’t have to worry about costly repairs before putting their house on the market.

Zillow Shares Plummeted Because Of Poor Executive Decision Making

However, the home-flipping market proved to be a drag for a company. Zillow had built its brand on listing homes across the country. The company also helped buyers and sellers connect through a marketplace.

Barton also told CNBC after the report that Zillow’s ultimate failure was its inability to predict housing prices accurately.

The market dried up dramatically at the beginnning of the Covid-19 pandemic. However, it then bounced back dramatically and prices climbed to record levels.

However, for the home-flipping business to be profitable, a company has to be able to sell a home for more at profit after other expenses. Barton also said the company accurately predict where home prices will be in six months “within a narrow margin of error.”

Zillow’s internet, media and technology business grew revenue 16% in the quarter to $480 million. The company saw a gross profit of just over $130 million.

Bloomberg reported on Monday also reported that Zillow was looking to sell 7,000 homes for $2.8 billion to institutional investors. The company is also looking to unload its portfolio of properties. As a result some of those sales would be for below the purchase price.

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